March Technical Analysis – DRN and EDC

All of my options expired over the weekend, although EDC tried its best to get above the $35 dollar make and help me out. The good news is that by hanging onto my shares, I did not have to pay any commissions.

With the market in a correction, now is not the time to double down or buy new positions. My rules for selling covered calls change slightly in order to hedge against losses.

I default to strike prices below the current market price (“in-the-money”). This should give me downside protection (i.e. the premium from the option will offest some of the losses if the market price continues to drop), while still providing some upside if DRN or EDC decide to rise in price between now and April 15.

Since the goal is to create income regardless of market conditions, I will still enter trades this month. Lets take a look at my underlying positions:

DRN is still in an uptrend, but testing longer term support levels.

EDC has moved sideways for most of 2011, and broke some key support levels recently.

Right now, I’m looking at $60 strikes for DRN and $34 strikes for EDC. As always, I will be opportunistic. If there are greater profits from higher strike prices or arbitrage opportunities, I’ll pull the trigger.